Nominal GDP

"Central bank distortions have exacerbated these movements, making investor interest more one-sided and leading one market after another to exhibit more bubble-like tendencies, rising exponentially and then falling back abruptly. As such, managers are struggling to justify their fees, while the sellside wonders whether it is really worth the continuing commitment to market-making in the face of increased capital requirements and legal and back-office overheads."

The Federal Reserve has created a semblance of normality, but by suppressing interest rates they have enabled non-linear, and very possible ugly outcomes, to become entrenched in US public debt dynamics. The euro crisis from 2010 to this day show how difficult it can be to regain investor trust when the unsustainability is first revealed for all to see.

Ever since the U.S. Federal Reserve (Fed) began to consider raising the federal funds rate, which it eventually did in December 2015, a cottage industry has grown up around taper talk. Will the Fed raise rates, or won’t it? Each time a consensus congeals around the answer to that question, all the world’s markets either soar or dive.

"U.S. economic recovery remains fragile, and downside risks to the economy are still present. Provided the data improve, the Council believes one or two well-timed and well-communicated increases in the federal funds rate between now and year-end would be prudent to accomplish the Fed’s mandates, enhance central bank credibility, and create policy latitude in the event of an unexpected economic downturn."

"The lack of progress and volatility in global equity markets the past year, which often precedes a major trend change, suggests that their risk/reward is negative without substantially lower prices and/or structural reform. Don’t hold your breath for the latter. While policymakers have no end game, markets do."

Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.

First there were seventeen. At length, there was one. Donald Trump’s wildly improbable capture of the GOP nomination, therefore, is the most significant upheaval in American politics since Ronald Reagan. And the proximate cause is essentially the same. Like back then, an era of drastic bipartisan mis-governance has finally generated an electoral impulse to sweep out the stables.

"The US stock market seems egregiously overvalued versus other stock markets... you are going to see declines in the US stock market and since the correlations are so high this means that probably the junk bond market will go back down, too. Negative interest rates are the dumbest idea ever. It’s horrible.... Gold is doing fine. It’s preserving capital in the US, it’s been making money over the last couple of years for European investors. That’s why I own gold.... Trump is going to win. I think Clinton and Sanders are both very poor candidates."

Any honest person working with such models know their gross limitations and how awful their track-records are. Still, these are the tools guiding the world’s central planners when they micromanage economies, be it fiscal or monetary expansion. They are obviously completely clueless, but still act with an extravagant level of hubris simply because they believe the scripture and their models.

The problem with forward earnings estimates is that they consistently overestimate reality by roughly 33% historically. The illusion of“permanent liquidity,” and the belief of sustained economic growth, despite slowing in China, Japan, and the Eurozone, has emboldened analysts to continue push estimates of corporate profit growth higher. Even now, as the earnings recession deepens, hopes of a sharp rebound in profitability remains ebullient despite the lack of any signs of economic re-acceleration.

"My view is still that the Fed does not actually do anything more than jaw-bone until or unless the S&P500 cash index is into the 1500s and the outlook for growth, employment and inflation get significantly worse – perhaps with the unemployment rate inching higher not lower.... I am also even more convinced now that we are about 10 months through a multi-year bear market that likely won’t bottom until late 2017 or early 2018. This will be a stair-step decline with all the strength to the downside punctuated by occasional (very) violent bear market counter-trend rallies driven by short covering, hope and residual belief in policymakers"